Romney Overcomes Auto Bankruptcy Issue in Ohio, But Just Barely

Super Tuesday has come and gone, and the GOP's 2012 presidential nomination process is officially...still a mess.

De facto frontrunner Mitt Romney picked up a number of delegates in Tuesday's primary contests, increasing his already substantial lead over fellow candidates Rick Santorum, Newt Gingrich and Ron Paul. But the nature of Romney's wins, and the respectable performances of his less establishment-friendly opponents, has left the primary picture as unclear as ever. All in all, Romney won contests in Alaska, Idaho, Massachusetts, Ohio, Vermont and Virginia, while Santorum drew on his considerable stock with Christian evangelicals to win North Dakota, Oklahoma and Tennessee. Gingrich won his home state of Georgia by more than a 20% margin, but didn't finish higher than third anywhere else.

Romney's win in Ohio, an important battleground state in the general election, was anything but decisive, and reflected the candidate's ongoing image problem among American autoworkers. After overcoming his auto bailout criticism to ultimately win the Michigan primary last month, Romney again had to answer for his opposition in Ohio, a state where one in every eight jobs is tied to the auto industry.

In fall 2008, Romney authored a now-infamous op-ed piece in the New York Times titled "Let Detroit Go Bankrupt," in which he sharply criticized President Barack Obama for using federal tax dollars to reorganize Chrysler and General Motors. The headline was misleading: Romney didn't really propose letting the two auto titans go bankrupt completely, but instead suggested that the reorganization should've hinged on private financing rather than taxpayer money.

However, the Obama Administration has argued that private financing was nearly nonexistent when the auto bailout was proposed and implemented, due to the then-ongoing credit crisis. And regardless of where the money came from, the auto bailout was largely successful. The entire effort breathed life into a once-moribund domestic auto industry, and became popular with investors and workers alike, especially those in states like Michigan and Ohio.

Romney's opposition to the bailout ultimately cost him in Ohio, where he won on Tuesday by a mere percentage point, nearly losing to Santorum. Moreover, even if he does win the nomination, Romney's middling performance practically guarantees that his "Let Detroit Go Bankrupt" sound bite will come back to haunt him in the auto-industry states in the general election.

Jacob Barron, CICP, NACM staff writer

Father of Z-Score Bankruptcy Prediction Model Scheduled to Lead Session at 2012 Credit Congress

The Z-Score has long been used as a predictor for bankruptcy, and Credit Congress will feature its creator.

Ed Altman, PhD will present "The Evolution and Importance of Corporate Distress Prediction and Financial Health Models and Their Implications" on June 13, one of several sessions covering bankruptcy and dealing with troubled companies.

Join us at this year's Credit Congress, June 10-13 in Grapevine, TX.

Click here to get more information about the Altman session and others.

Municipal Bankruptcy Roundup: Stockton, Jefferson County, Providence

Though Providence has been front of mind as the city perhaps most likely to file for Chapter 9 municipal bankruptcy protection, it appears Stockton, CA might threaten to beat the Rhode Island capital to the punch. Though California voted in a new law last year to slow municipal bankruptcy filings amid growing reports of widespread financial problems within many local governments, Stockton officials are the first to engage in the new mandate's mediation process. Reportedly, officials there and representatives are trying to set up meetings with bondholders, creditors and employee unions to discuss options to help the debt-saddled community.

Even the city mayor, Ann Johnston, has strongly intimated publicly that there may be no other option than to file without concessions by various stakeholders in the community hit hard by an economic downturn that decimated real estate values and resident wealth. It would be the largest municipal bankruptcy by a city in U.S. history if filed.

Meanwhile, Jefferson County, AL creditors tied to what is to date the largest Chapter 9 filing ever in the United States suffered a setback in derailing the proceedings. U.S. Bankruptcy Court Judge Thomas Bennett issued a ruling allowing the county to continue operating under bankruptcy protection and the case to proceed. Creditor groups, including Bank of New York Mellon, asked to have the case dismissed, similar to Harrisburg's, on the argument that its county commissioners were not authorized to file due to conditions permitted by existing state law. Jefferson County has been reeling financially from a botched sewer retrofit venture that has left the county with upwards of $4 billion in debt.

In addition, Providence's flirtation with a potential filing took another step forward over the last week as Mayor Angel Tavares went public with even more grimmer predictions for the city without some sort of assistance to manage its debt. The assistance Providence officials are looking for comes largely from retired employees, in the form of a cut on long-agreed benefits or at least a freezing of upward adjustments.

It appears to be straight out of the playbook of the nearby Central Falls, RI municipal bankruptcy in which officials there called retirees' bluff, essentially, and filed a Chapter 9 last summer. That caused retirees to eventually agree to an out-of-court settlement (re: cut of pension benefits) to save millions on entitlements choking the city budget.

Brazil Growth Improves, Central Bank Seeks to Cool Inflation

Brazil's overall GDP growth recovered a bit in the fourth quarter of 2011. After falling by 0.1% in the third quarter, the Brazilian economy grew by 0.3% to close out last year, bringing the real GDP growth for all of 2011 to 2.7%.

At first glance, this would appear to be good news. However, compared to 2010, which saw Brazilian GDP hit a blistering 7.5%, the 2.7% annual GDP figure begins to look far less impressive.

Due to the disappointing GDP growth, among many other reasons, Brazil's efforts to contain further appreciation of the real are expected to continue for the foreseeable future. According to Fitch Ratings, exporters and investors can expect the government to remain focused on stimulating domestic growth throughout 2012 as demand for Brazilian exports remains under pressure.

Capital inflows have boosted the value of the real to the point where Brazil now has trouble competing globally, and all at a time when slow external demand growth has already weakened trade and current account balances. Fitch noted that as exports, industrial output and GDP growth slow, the Brazilian Central Bank (BCB) could continue to ease monetary policy by further cutting the benchmark interest rate.

But the BCB and the country's Ministry of Finance have already begun to take actions that seek to curb capital inflows into Brazil in an effort to cool the real's appreciation. Last week, the Ministry of Finance announced that it would extend the 6% transaction tax on foreign loans to maturities of three years, up from two years, while the BCB imposed tougher limits on certain types of trade financing. Specifically, the BCB's latest regulation exempted export prepayment loans from taxes for maturities shorter than 360 days. Transactions that last longer will be forced to pay the previously mentioned 6% transaction tax, and only importers will be allowed to take out these trade financing transactions.

Despite the continued efforts of the BCB to slow down the real, which has appreciated by 10% since the start of 2012, Fitch expects Brazilian growth to improve to 3.2% this year.

Jacob Barron, CICP, NACM staff writer

Business Credit Online

Current and past issues of Business Credit are online in flip-through format.

It's a great way to get the most out of your membership, especially if you can never find the hard copy of the magazine in your office and want to share it with the rest of your department.

Stats Say Indian Exports Rising, But Trade Ban Grabs Headlines

India continued to improve exporting activity of late with a double-digit gain in activity in January. However, India's trade deficit also demonstrated it has a long way to go, all while shutting down trade in one key product area for the second time since Spring 2010.

Recently unveiled statistics indicate India's export activity grew by 10.1% in January, triple the percentage rate of just two months ago. While a marked improvement, the exporting activity still remains well below the pace typically found during the middle and latter portions of the year. Despite its status as one of the top four emerging economic powerhouses, it still runs on a near $15 billion trade deficit. Some would categorize India as a land of contradiction despite signs of massive potential, but the European Union debt crisis and, to a lesser extent, U.S. consumer tentativeness have left gaps in demand for Indian-based outfits.

The big headline coming out of India from a trade perspective this week is the nation's ban of cotton and like fiber exports. Textile manufacturers based in India have been begging for assistance as the commodities market activity has caused pricing problems for its domestic business. Part of that is the massive consumption of cotton from buyers based in China.

India's last ban on cotton exports in April 2010 caused a pricing surge and, while it's too early to safely predict the mid- and long-term impacts of the ban, plenty of that trademark volatility in the commodity's trading activity was on full display in the hours after the announcement.

Causing less of a stir, sources at the Coffee Exporters' Association predicted the nation's exporting activity was going to drop by more than 15% for the fiscal year. Uncooperative weather and insufficient resources hurt the crop harvest significantly this year, though demand could be affected, again, by EU problemsâ€”Italy and Spain are two of the biggest importers of Indian coffee products.

India will be front-and-center at two FCIB educational opportunities this spring. It will be featured during the "Doing Business in the BRICs" session at the 2012 International Credit Executives (I.C.E.) Conference in Chicago May 2-4 as well as in the two-day webinar, "Doing Business in India," starting April 24. For more information or to register, visit www.fcibglobal.com).

Brian Shappell, NACM staff writer

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February Bankruptcies Jump 19% over January

Total bankruptcy filings in the U.S. jumped in February, increasing by 19% to 104,418 from January's total of 87,981, according to the American Bankruptcy Institute (ABI). Filings per day rose by 27% to 3,601 from 2,838 in January, and the 99,288 total noncommercial filings in February 2012 represented a 20% increase over the January 2012 total of 83,014. Total commercial filings topped 5,130 last month, marking a 3% increase over the 4,967 filings in January.

On a year-over-year basis, however, bankruptcy filings are still falling. Data collected by Epiq Systems, Inc. showed that the total February 2012 filings decreased 5% from the February 2011 total of 109,565, and the drop was even more dramatic in terms of commercial cases. Last month's figures were 16% lower than the 6,076 commercial filings recorded in February 2011.

"The stagnant housing sector and high unemployment continue to stress the cash flow of consumers and businesses," said ABI Executive Director Samuel Gerdano. "As consumers and businesses work to shed tremendous debt loads, there are times when bankruptcy is the only shelter to provide financial relief."

In all, there were 750 Chapter 11 filings in February, representing a 1% increase over January's total of 744, but a 3% decrease from the 2011 total of 770. Although there aren't that many to begin with, Chapter 15 cases, which allow foreign companies to avail themselves of the U.S. bankruptcy courts, experienced the largest increase in February. Last month's Chapter 15 total of 40 was 567% higher than the 6 filings registered in the same period in 2011, and 74% greater than the 23 filings in January 2012.

On a state-by-state basis, Tennessee had the highest per capita filing rate, with Nevada in second and Georgia a close third.

Jacob Barron, CICP, NACM staff writer

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